In the first half of 2013 Polish investors were the most active they have been in the local market since Poland’s commercial property investment market was established, coming third behind German and US funds. According to the latest report “Marketbeat Poland – Autumn 2013” prepared by Cushman & Wakefield, a leading global real estate service firm, the Polish investment market was dominated in H1 2013 by the office sector. As at the end of Q2 2013, Warsaw’s total office stock exceeded 4,000,000 sq m. The retail market now looks forward to grand openings of several new retail schemes in the second half of the year. The industrial market remains stable.
“Marketbeat Poland – Autumn 2013” presents an overview of the Polish office, retail and industrial markets in the first half of 2013 and an outlook for the nearest future.
KEY REPORT FINDINGS:
Commercial investment market:
• The volume of transactions made in H1 2013 hit EUR 1.09bn
• The office, retail and industrial sectors accounted for 60%, 23% and 16% of the total investment volume, respectively
• Polish investors acquired properties for around EUR 192m, with the record high market share at more than 17%
• Office supply in Warsaw outstrips absorption, which may lead to greater pressure on rents
• Warsaw’s total office stock has topped 4,000,000 sq m
• Vacancy rates are rising across Poland, with the exception of Krakow which decreased to 2.7%
• The largest retail scheme opened in H1 2013 was Europa Centralna in Gliwice (67,000 sq m)
• A wave of new supply is expected in the second half of the year, including Galeria Katowicka and Poznań City Center
• Retail parks and discount chains are growing strongly
• Some 148,000 sq m of new industrial space came onto the market in H1 2013 (a 30% decrease in new completions)
• Warsaw’s share in Poland’s total stock is contracting, as regional markets become increasingly significant
• There is growing demand for warehouse space, driven by e-commerce
KEY REPORT FIGURES:
• EUR 192m – total transaction volume of Polish investors on the commercial investment market in H1 2013
• 4,000,000 sq m – total stock of modern office space in Warsaw
• 450,000 sq m – new retail space supply expected in Poland in H2 2013
“Activity across all commercial sectors remains robust, despite the market moving into a new cycle and the projected economical revival in Poland will gradually and positively impact the occupier markets. The investment market in Warsaw remains liquid and with favourable pricing compared to many other core European cities, there is increasing interest from a widening range of players,” says Charles Taylor, Managing Partner of the Polish office of property consultant Cushman & Wakefield.
The volume of transactions closed hit EUR 1.09bn at the end of June 2013, up by around 16% compared with the same period last year. In line with previous years, German and US investors commanded a nearly 50% market share. The largest deal in the first half of 2013 was ECI’s sale of New City and NC2 office buildings to Hines Global REIT for EUR 127m.
In the first half of 2013 office buildings accounted for around 60% of the total investment volume with EUR 660m invested in this sector, the highest figure since 2007. This was due to both strong demand for high-quality office buildings and a healthy supply of prime income producing assets. The retail transaction volume settled at around EUR 247m, nearly half the deal volume in the same period last year. However, this underperformance did not result from weakening demand, but from the lengthy negotiations and formalities related to signing final sale agreements. The volume of transactions on the Polish warehouse market reached around EUR 173m with the largest transaction being the sale of a 50% stake in Prologis’ portfolio to the Norwegian sovereign wealth fund Norges Bank Investment Management.
“Polish investors came third with a record high market share at more than 17% and properties acquired for around EUR 192m. The stronger position of domestic investors is likely to increase stability of the Polish market and stimulate other market players to invest. However, it is worth noting that investment activity in the first half of the year was generally robust. The outlook remains healthy for the forthcoming months given the large number of deals signed in Q3 2013 and preliminary contracts totalling around EUR 1.2bn. Strong demand and supply of new assets to come onto the market in the years 2014-2015 are expected to contribute to a high transaction volume on the Polish investment market in later years as well,” said Wojciech Pisz, Head of Capital Markets Group, Cushman & Wakefield.
In H1 2013, more than 152,000 sq m of modern office space was delivered on the Warsaw market, bringing the capital’s total stock to over 4,000,000 sq m. By comparison, the total stock of all the key Polish cities, including Warsaw, stands at 6,428,370 sq m. The largest building completed in H1 2013 was HB Reavis’ Konstruktorska Business Center (48,300 sq m). Around 500,000 sq m will come onto the Warsaw market by the end of 2015. Leasing activity in Warsaw totalled 333,900 sq m, a rise of more than 12% on the first half of 2012. Renegotiations accounted for 31% of Warsaw’s total gross take-up. The largest deal in H1 2013 was the lease of 13,000 sq m in the Ochota Office Park by the Office for Registration of Medicinal Products, Medical Devices and Biocidal Products. Absorption in Warsaw reached more than 70,500 sq m of office space, which marked an increase of 19.5% on the level in the same period of 2012. The vacancy rate rose to 10.50%. Prime rents in Warsaw stand at EUR 25.5/sq m/month with modern office buildings in non-central locations fetching no less than EUR 13.5/sq m/month.
As regards share in total take-up in Poland in H1 2013, Warsaw was followed by Krakow (11%) and Wrocław (10%). Vacancy rates increased in all the key office markets, with the exception of Krakow, where the low supply pushed the vacancy rate down by 1.2 percentage points compared with the end of 2012. The highest new supply of all the regional cities in Poland in H1 2013 was recorded in Tricity (51,000 sq m). In Wrocław, 28,000 sq m was added to the market in the Sky Tower, with nearly 12,000 sq m taken up by Getin Group companies. Headline rents in prime locations remained stable, ranging from EUR 13/sq m/month in Łódź to EUR 16/sq m/month in Wrocław and Poznań.
“Tenants seeking ways to reduce operating costs and the expiry of leases signed in 2007-2008 are drivers of leasing activity. New high-rise office buildings will be constructed in Warsaw soon, including
Ghelamco’s tower building (around 60,000 sq m) within the Warsaw Spire complex and Echo Investment’s Q22 (around 50,000 sq m). With office space supply in Warsaw by far outstripping absorption, rising void rates are leading to greater pressure on rents. What’s more, tenants in Warsaw also tend to take up space in cheaper non-central locations,” said Richard Aboo, Partner, Head of Office Department, Cushman & Wakefield.
New modern retail supply totalled nearly 200,000 sq m in H1 2013, increasing the total floorspace to 11.2 million sq m by the end of June 2013. The largest retail scheme to open was Europa Centralna in Gliwice totalling 67,000 sq m and combining traditional shopping centre and retail park functions. Rents continue to vary depending on the location and scheme, with substantial differences between headline and effective rents. Prime shopping centres in Warsaw command the highest rates at EUR 75-85/sq m/month.
Apart from shopping centres, Poland’s retail park sector is also experiencing rapid growth with a dozen or so developers strongly active on the market. Discount stores continue to move ahead with strong growth strategies by improving store standards and looking to establish a foothold in shopping centres and downtown locations. By contrast, hypermarket chains are changing their expansion strategies by reducing store size and increasing density. Major changes in high streets are likely to take place after the opening of the second metro line in Warsaw and the completion of the refurbishment of 3 Maja Street in Katowice. The market of Poland’s outlet centres remains stable.
“This year’s main wave of new supply (more than 80%) is expected in the second half of 2013 with the scheduled delivery of nearly 450,000 sq m, including space in Galeria Katowicka and Poznań City Center. The annual retail supply may, however, dwindle slightly in the next two years given the current pipeline. Due to the current demand level, the marketing period for new schemes has become much longer. Demand is driven primarily by large non-food retailers interested in prime locations and favourable lease conditions. Smaller chains are more cautious. The highlights of H1 2013 in Poland were the opening of the Louis Vuitton store and the market debut of the sports equipment and clothing retailer Sports Direct,” says Piotr Kaszyński, Partner, Head of Retail Department, Cushman & Wakefield.
As at the end of June 2013, Poland’s total modern warehouse stock reached 7,678,000 sq m. The highest concentration of warehouse space is in the Warsaw region, which accounts for around 36% of the country’s total stock, but its share is steadily contracting. Other large regional warehouse destinations of Upper Silesia, Poznań, Central Poland and Wrocław provide around 4,950,000 sq m. Development activity in the industrial sector slowed in the first half of 2013. Some 148,000 sq m came onto the market.
Modern warehouse take-up in the first half of 2013 stood at 868,000 sq m (approximately 500,000 sq m was noted in the second quarter), reflecting a significant rise compared with 660,000 sq m transacted in the first half of 2012. The largest deal was Castorama’s lease of 50,000 sq m in Panattoni Park Stryków. Take-up predominantly came from logistics operators and distribution occupiers (37%). E-commerce is also a driver of leasing activity. Headline rents remained at the same level. The highest rate was in Warsaw’s Inner City (EUR 4.5-5.8/sq m/month), with the lowest in Central Poland and in the Warsaw suburbs (EUR 2.4-4/sq m/month).
“Although the market saw a decrease in new warehouse completions by 30%, the occupancy market boasted some great results as we witnessed some very large and strategic transactions take place as occupiers look to take advantage of relatively low construction costs and rents. Improving road infrastructure has also facilitated the development of other warehouse destinations in particular Tricity, Szczecin and Lublin,” said Tom Listowski, Partner, Head of Industrial Department and CEE Corporate Relations, Cushman & Wakefield.